Bernard Guarnera, chairman of US consulting firm Behre Dolbear, was the star attraction at last year’s Mines & Money conference in Sydney, delivering a full-fat forecast that the coal boom is nowhere near ending. If anything, it’s just beginning.
That was six months ago. What does the man who’s forgotten more about coal than most people remember think today, especially in the light of the darkening view of Chinese growth.
“Nothing has changed,” said a still supremely confident Guarnera at this week’s Hong Kong edition of the Mines & Money circus. “People want a higher standard of living and that means they want electricity, and that means they must have coal.”
For anyone who missed what Guarnera said last year, here’s a refresher, starting with his six key facts:
- Despite political pressure, coal consumption will grow at a faster rate than all other energy sources combined
- China is driving the coal price today
- India will be the driver tomorrow
- Australia (and Indonesia) share a significant transport cost advantage over other coal producing countries
- Coal mining cost inflation is a big issue, especially in South Africa
- The price of metallurgical coal is not reflected in the share price of met-coal miners
“If you look at the cost curve for metallurgical coal producers you see that at current prices they are very comfortable. That’s not reflected in their stock prices. The cost curve is very, very, favourable for metallurgical coal,” he said.
Guarnera added that Australian metallurgical coal producers occupied the lower end of the global cost curve, with a single US producer edging into the sub-$US80 per tonne range, and Chinese domestic costs running at $US110/tonne.
“While China is a major producer of coal in its own right it will have to expand its level of imports to meet that enormous increase in demand which is being driven by the movement of 20 million people a year into cities.
“India may become the largest consumer of coal. India’s power plant expansion is dynamic. It is trying to move its middle class up as quickly as it can,” he said. The increase in Indian electricity production will accelerate rapidly over the next four years, matched by a major expansion of port capacity,” he said.
“By 2020 India will be importing approximately 350 million tonnes of coal a year. India is projected to be the world’s largest coal importer.”
“If you look at global demand coal will outpace other fuel sources. It is estimated to grow by 53% by 2030. That’s more than 1.5 times the combined growth of natural gas, nuclear, hydro and renewable. Asia will account for 90% of that demand, or approximately three billion tonnes.”
In Hong Kong this week Guarnera was not on the podium, but he was manning the Behre Dolbear booth, which is where Hogsback caught up with him, half expecting a retreat from the ultra-optimism of Sydney.
No way. Guarnera was as feisty and buoyant as last October, sticking to his theme that renewable power sources will prove to be too expensive and unable to meet base-load demand. Slow growth in Europe and the US was an irrelevant factor in the coal-demand picture thanks to what was happening in Asia.
“The demand picture remains as bright as ever,” he said. “You don’t look at what’s happening on a day-to-day basis. This is a long-run event that is being driven by people wanting to lift their living standards. Coal is the most cost effective way to deliver the electricity they want.”
